What will happen to the Government and RBI tangle?

A very undesirable and unwanted controversy is now on. The Government of India is on a collusion course with the RBI, the highest authority on all monitory matters.

Even without going into who is right and who is wrong, what has really happened? How is that this independent body, headed by superb professionals, has been undermined? Some years ago, we had the brilliant Raghuram Rajan who said " Iam Raghuram Rajan. I do what I do". He quit in disgust. That is another story. We tend to forget that he is celebrated as one of the best economists in the world. His books are Bibles even today.

The Government of India has to sort out the mess. It has failed to create the huge number of jobs it promised. The absolutely ridiculous promises of bringing back all black money and depositing a full fifteen hundred thousand rupees in each bank account of every Indian citizen, has all come to zero.

A very undesirable status. There is a rumour that the government has initiated Section 7 of the RBI act. This provision in the RBI Act gives the government powers to direct the RBI in its activities. According to various reports so far no government has invoked Section 7. The government has sent several letters, it is reported, to the RBI recently on issues like liquidity for non-banking financial companies, the capital requirement for weak banks and lending to micro, small and medium enterprises. I agree with the author that the government has to sort out the mess. The government made many promises and it is the responsibility of the government to see that they will take action in the direction of fulfilling the promises. Not at all a welcome situation between the government and the RBI. It is better for the country to sort out the problem at the earliest.drrao always confident

It looks like the Reserve Bank of India (RBI) is not autonomous anymore. The reports indicate that the Government invoked Section 7 of RBI Act. The government can initiate a dialogue with the RBI with a specific mention of the Act and can list the issues that it would like to discuss. After discussions, the government can give instructions to the RBI based on the discussions. The invoking of Section 7 of RBI Act is done at extraordinary circumstances. This is the first time this happened.The rift started on the following issues.1. The Government wants the RBI to transfer surplus funds available with it to the Government. The RBI transfers some of its surpluses to the Government every year at its discretion. Now the Government demands more.2. The Government wants the interest rates to be reduced. The RBI follows it's own policies considering many facts including the control of inflation. The RBI feels the Government is interfering with it's functioning. 3. The RBI after the scams like Nirav Modi wants more powers to it to curb such scams.4. The RBI has placed 11 banks for under Prompt Correction Action (PCA) due to their poor asset quality and weak capital base. The Government wants these banks to be permitted to issue loans even at the risk of NPAs increasing.5. The RBI is the payment regulator in the country. The Government wants to set up a separate pay regulator taking it away from the RBI. The RBI feels it as an infringement of the Government.

The interference of the Government can be seen in the functioning of the RBI which is supposed to be an autonomous body. What extraordinary circumstances caused the Government to invoke Section 7 of the RBI Act? This is to be explained by the Government. The rift is not good and the interference of the Government in the functioning of the RBI may cause adverse effects as narrated by the Deputy Governor of RBI recently.

The International Monetary Fund said today that it is closely observing the reported rift between the RBI and the Government of India, and expressed its opposition to any move that compromises the independence of central banks anywhere in the world." Be Good and Do Good "

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